Fed's Christopher Waller Supports Stablecoin, Amid Push for Regulation

Federal Reserve Governor Christopher Waller has expressed strong support for stablecoins, emphasizing the potential to strengthen the position of the US dollar as the world's main reserve currency. In a recent interview, Waller emphasized the need for appropriate regulatory oversight to ensure the stability and reliability of stablecoins in the global financial system. The role of Stablecoin in strengthening the dollar Waller pointed out that stablecoins, mainly pegged to the US dollar, play a significant role in enhancing the dominance of the dollar in the international market. He acknowledged that while stablecoins could be pegged to any currency, their widespread use pegged to the dollar format helps maintain the influence of the greenback worldwide. However, he also emphasized the importance of implementing regulatory safeguards to ensure the safety and transparency of the funds supporting these digital assets. His remarks come at a critical time when policymakers and financial regulators are actively working to establish a solid framework for monitoring the issuance and management of stablecoins. This move aims to prevent a repeat of market disruptions in the past, such as incidents related to TerraUSD and FTX, which resulted in significant losses for investors and destabilized the cryptocurrency industry. The efforts of the National Assembly to manage Stablecoin To address the increasing concerns about the stability and security of stablecoins, the National Assembly has proposed a bill to create a clear regulatory framework. This bipartisan effort reflects a rare case of political consensus in Washington, with both Democratic and Republican lawmakers supporting tighter oversight of stablecoin issuers. The Chairman of the Financial Services Committee, Representative French Hill and the Chairman of the Subcommittee on Digital Assets, Representative Bryan Steil, recently released a draft discussion of a bill that seeks to establish strict requirements for the issuance of stablecoins. Under the proposed law, only entities classified as "authorized stablecoin issuers" would be allowed to issue stablecoins in the United States. The main provisions of the proposed Stablecoin Bill The draft law includes several key provisions aimed at ensuring the stability and reliability of stablecoin: Reserve Requirements: Stablecoin issuers must maintain a 1-1 reserve of liquid assets to support the stablecoin they issue. Eligible reserves include US dollars, insured deposits, short-term Treasury bonds with a maturity of 90 days or less, and deposits with central banks.Transparency and Publicity: Issuers must publicly disclose their reserve composition on a monthly basis. These reports must outline the total circulating stablecoin supply as well as provide an analysis of the assets backing them.No Rehypothecation: The proposed law prohibits issuers from reusing or pledging their reserves for purposes other than maintaining liquidity. This measure is designed to prevent risky financial activities that could lead to instability.Approval Process: Units seeking to issue stablecoins must submit an application to the federal payment regulatory agency. The regulatory agencies have strict deadlines for processing registration applications. 45 days to notify the applicant if their application is complete. 120 days to approve or reject the application after it is deemed complete. If rejected, the regulatory authorities must provide detailed reasons within 30 days, including proposed improvements. Appeal right: If the application is rejected, the issuer has the right to appeal the decision and request a hearing in writing or orally to object to the judgment. Meaning for the cryptocurrency industry The proposed bill represents a major change in the regulatory landscape for stablecoins. If enacted, it will bring greater transparency and security to the industry, potentially boosting investor confidence and promoting wider adoption of stablecoins both in domestic and international markets. However, it also imposes significant compliance burdens on issuing entities, requiring them to adhere to strict reporting and liquidity requirements. The introduction of regulation monitoring for stablecoins faces numerous challenges, including market volatility, regulatory oversight, and cybersecurity threats targeting decentralized finance (DeFi) protocols. Ensuring that stablecoins remain tightly managed and supported by reliable reserves will be crucial in minimizing these risks and maintaining their role as a trusted financial tool. Conclusion Federal Reserve Governor Christopher Waller's support for stablecoins, along with Congress pushing for clarity in regulations, marks a pivotal moment for the digital asset industry. While stablecoins have the potential to strengthen the global position of the US dollar, their long-term viability depends on successfully implementing measures that promote transparency, security, and financial stability. As lawmakers and regulators continue to refine proposed legislation, the future of stablecoins may hinge on achieving a balanced approach that fosters innovation while safeguarding the financial system.